HLIB Research said it is cutting financial year 2023 (FY23) to FY25 earnings by 9% to 10%.
PETALING JAYA: RHB Bank Bhd’s results for the second quarter ended June 30, 2023 (2Q23) came largely within analysts’ expectations, thanks to management overlay writebacks.
While the bank’s net interest margin (NIM) had compressed, Hong Leong Investment Bank (HLIB) Research sees NIM stabilising from 3Q23 onwards as competition for fixed deposit (FD) is benign.
“Hence, FDs of January to March 2023, which are bound for expiration, will likely start to be repriced at lower rates.
“Also, we observed current NIM has fallen below pre-pandemic level of 2.10% to 2.20%, indicating a limited downside from hereon,” it said in a note to clients.
In 2Q23, RHB Bank posted a net profit of RM809mil, an increase of 28% year-on-year, bringing profitability for the first half of financial year 2023 (1H23) to RM1.6bil.
“This was within expectations, making up 50% to 53% of both our and consensus full-year forecasts,” said HLIB Research.
The bank’s loan growth had lost some traction, while gross impaired loan ratio had nudged up sequentially.
Following a downward revision in NIM guidance, HLIB Research said it is cutting financial year 2023 (FY23) to FY25 earnings by 9% to 10%.
The research firm observed that the bank’s loan loss coverage of 83% is on par to pre-pandemic level of circa 85%.
Meanwhile, CGS-CIMB Research said RHB Bank remains its top stock pick in the banking sector because of its highest forecast dividend yield of 6.5% in calendar year 2023 and enticing valuation with forecast price-to-earnings ratio of 7.1 times for 2024.
This is despite 1H23 results coming in below the research firm’s expectations, at 44% of its full-year forecast.
Based on its financial performance in 1H23, it noted that RHB Bank missed, albeit marginally, its FY23 key performance indicators. The bank’s management had guided that it expects the elevated funding costs and compression in NIM to persist in the near term, but sees possible improvement towards year-end.
It is targeting a normalised credit charge-off rate of 25 to 30 basis points in FY23 (excluding the writeback in management overlay) versus 21 basis points in 1H23.
“Going forward, the potential re-rating catalyst for the stock would be an increase in dividend payout ratio (from our assumption of 50% for FY23 to FY25), given its strong common equity Tier-1 capital ratio of 17.1% as at end-June 2023,” it said.
CGS-CIMB Research is keeping its “add” rating on the stock with a target price (TP) of RM6.56.
In its report, Kenanga Research said RHB Bank looks to keeping its targets for FY23 and is optimistic that its market positioning would enable it to deliver favourable results despite possible top line restraints.
“Although year-to-date loan growth only came in at 0.9% with softening prospects ahead, the group believes it could still meet its initial 4% to 5% loan growth guidance.
“Weakness has been primarily seen in the group’s wholesale-corporate segment, of which a supportive mortgage portfolio could help to cushion,” said Kenanga Research.
It said the bank believed funding cost pressures will subside after bearing most of the strains in 1H23, with an increasing proportion of auto financing moving towards variable rate schedules.
“With the improving sentiment in investment markets, the group opines that its treasury performances will continue to demonstrate favourable returns as opposed to losses during the prior periods.
“This would help to offset any weakness experienced with its fee-based income streams,” added Kenanga Research, which has an “outperform” rating and a TP of RM6.80 on the stock.
